10-KPeriod: FY2016

ONEOK INC /NEW/ Annual Report, Year Ended Dec 31, 2016

Filed February 28, 2017For Securities:OKE

Summary

ONEOK Inc.'s (OKE) 2016 10-K filing highlights a pivotal year for the company, marked by significant growth in its midstream operations and the announcement of a transformative merger with its master limited partnership, ONEOK Partners (OKS). The company's core business segments—Natural Gas Gathering and Processing, Natural Gas Liquids, and Natural Gas Pipelines—demonstrated robust performance, largely driven by fee-based revenues and increased volumes from producer activity in key regions like the Mid-Continent (STACK and SCOOP areas) and the Williston Basin. The proposed merger with ONEOK Partners, announced in January 2017, is a significant strategic move aimed at simplifying the corporate structure and enhancing financial flexibility. This transaction is expected to unlock further growth opportunities and provide greater financial strength for dividend payouts. Investors should note that while the majority of ONEOK Partners' earnings are fee-based, the company is exposed to volumetric risk and commodity price fluctuations, though hedging strategies are in place to mitigate some of these impacts. The company's strong focus on operational safety and environmental responsibility remains a cornerstone of its business strategy.

Financial Highlights

52 data points
Beta

Revenue

$8.92B

27.2% Gross Margin

Net Income

$352.04M

3.9% Net Margin

EPS (Diluted)

$1.66

Total Assets

$16.14B

Cash & Equivalents

$248.88M

Free Cash Flow

$728.59M

Financial Statements
Beta
Revenue$8.92B
Cost of Revenue$6.50B
Gross Profit$2.42B
Operating Income$1.30B
Interest Expense$469.65M
Net Income$352.04M
EPS (Basic)$1.67
EPS (Diluted)$1.66
Shares Outstanding (Basic)211.13M
Shares Outstanding (Diluted)212.38M

Key Highlights

  • 1ONEOK announced a definitive agreement to acquire the remaining publicly held common units of its master limited partnership, ONEOK Partners (OKS), in a merger transaction, aiming to simplify its structure and enhance financial flexibility.
  • 2The company's operations, particularly through ONEOK Partners, benefited from increased producer activity in the NGL-rich STACK and SCOOP areas of the Mid-Continent region, driving higher volumes and demand for services.
  • 3Fee-based earnings remained a significant driver of performance, with the Natural Gas Pipelines segment achieving approximately 95% fee-based revenue, Natural Gas Liquids at 90%, and Natural Gas Gathering and Processing at 80% in 2016.
  • 4ONEOK continued to expand its infrastructure, completing several growth projects, including processing plants and pipeline expansions (e.g., Bear Creek processing plant, Roadrunner pipeline phases), enhancing its capacity and market connectivity.
  • 5The company reported an increase in total revenues to $8.92 billion and operating income to $1.29 billion in 2016, with Adjusted EBITDA growing by 17% to $1.83 billion.
  • 6ONEOK maintained its commitment to returning capital to shareholders, with dividends declared per common share totaling $2.46 for 2016, an increase from $2.43 in 2015.

Frequently Asked Questions

The merger with ONEOK Partners simplifies ONEOK's corporate structure by bringing the MLP's assets and operations fully under the parent company. This is expected to enhance financial flexibility, potentially reduce the cost of capital, and allow for more efficient execution of growth strategies, ultimately aiming to increase shareholder value and dividend growth.

While ONEOK Partners' operations are increasingly fee-based (around 88% in 2016), there is still exposure to commodity price volatility, particularly impacting the Natural Gas Gathering and Processing segment where proceeds from commodity sales are retained. This risk is mitigated through contract restructuring to increase fee components, minimum volume commitments, and hedging strategies for a significant portion of commodity price risk in certain segments.

Growth is primarily driven by increasing producer activity in NGL-rich basins, such as the STACK and SCOOP in the Mid-Continent and the Williston Basin. Specific drivers include the need for producers to connect new production to markets, increased demand for NGLs from the petrochemical industry and exporters, and demand for natural gas from power plants converting from coal, as well as increased natural gas exports.

ONEOK Partners completed several key growth projects in 2016 and has a pipeline of projects planned for 2017. The company projected capital expenditures between $520-$640 million for 2017, focusing on expanding its Natural Gas Gathering and Processing and Natural Gas Liquids segments, aligning with customer needs and driving fee-based earnings growth.